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4 Common Retirement Mistakes and How to Avoid Them

4 Common Retirement Mistakes and How to Avoid Them

| November 18, 2021
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It’s impossible to go through life without making mistakes—they’re just a part of being human. In fact, we often learn from mistakes of the past to make better decisions in the future. However, when it comes to retirement, there are no do-overs. In this major financial transition, you go from earning an income and growing your wealth to depending on it and trying not to outlive it. Retirement is not a time to go on autopilot. To make sure things go as planned, you must make a few key decisions and take a few key actions. Here are 4 common mistakes retirees make and what you can do to avoid them. 

1. Overspending in Retirement

Do you know what you will do with your newfound freedom in retirement? Many people start by pursuing all the things they didn’t get to do while working—traveling the world, picking up a new hobby, remodeling their home, and the list goes on.

But many people underestimate the amount of money they’ll spend in those first few years of retirement. With so much extra time on your hands, it’s easy to make a lot of little purchases that add up to a lot over time. 

If you want to avoid this mistake, create a detailed but realistic budget and stick to it. Yes, you can budget for extras such as a vacation or a new hobby, but make sure you know how it will affect your nest egg before you follow through with it. And be sure to work with your advisor to find a withdrawal rate that will stretch your money for as long as possible.

2. Overreacting to Stock Market Volatility 

Retirees tend to want to play it safe in the stock market. They want to invest on the conservative side and protect their nest egg as much as possible. But when you play it too safe, your savings can’t keep up with inflation and you end up losing money down the line. 

Since your retirement may last anywhere from 20 to 30 years—as much time as you’ve spent in the workforce—don’t get caught up in investing too conservatively just to avoid short-term volatility. When your portfolio is too conservative, inflation becomes the biggest threat to your assets. 

3. Claiming Social Security Too Early

Don’t assume it’s best to start collecting Social Security at age 62 (or at full retirement age, for that matter). If your full retirement age is 66, for example, you could receive a 32% increase in monthly benefits by waiting to collect Social Security until age 70. (1)

When deciding when you should start collecting Social Security, consider the size of your nest egg, your retirement date, and the current state of your health. Calculating when to claim your benefits is both an art and a science. If you need help, reach out to a trusted financial advisor who can help you run the numbers.

4. Miscalculating Taxes on Retirement Income

Your retirement accounts are all taxed differently. If you don’t have a strategic withdrawal plan in place, you could end up with a large tax bill at the end of the year. For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. If you blindly take your money and run, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums, which will eat away at the funds that were supposed to carry you through retirement. Creating a tax plan can help you strategically withdraw from your various retirement accounts and minimize your tax liability. 

Speak with a financial planner or tax advisor about creating a tax-efficient distribution strategy for retirement. This professional can look at your tax bracket, retirement accounts, and Social Security to help you withdraw money in the most tax-efficient way. 

Avoid These Mistakes!

It’s impossible to go through life without making mistakes, but that doesn’t mean we shouldn’t proactively plan to prevent obstacles and challenges that could threaten your hopes for a fulfilling retirement. Even if you’ve been planning and saving on your own for decades, now is not the time to wing it. 

As your partner on your retirement journey, we at Match Point Financial can help you create the foundation necessary for a comfortable and worry-free retirement. To learn more about our services and how we can help you avoid these pitfalls (and others), call 352-207-8014 or schedule a complimentary phone call using our online calendar.

About Chris

Chris Reed is a financial advisor and the founder of Match Point Financial. Since 2002, he has been helping people make informed choices with their money and pursue their financial goals and objectives. He started his career with MetLife and has continued seeking to provide his clients with the best possible service through A.G. Edwards, UBS, and, finally, through partnering with Cetera Advisors LLC and forming his own independent firm in 2010. Learn more about Chris by connecting with him on LinkedIn or register for his recent webinar: Are Your Old 401(k)s Collecting Dust and Losing You Money?

Financial Advisor: Securities and advisory services offered through Cetera Advisors LLC, member FINRA/ SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.

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(1) https://www.ssa.gov/planners/retire/1943-delay.html

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